Meaning of Specific Incomes Chargeable as Income from Other Source under Income Tax Act 1961: Section 56(2)

By | August 5, 2014

As Per Income Tax Act 1961 “Basic Specific incomes chargeable under the head INCOME FROM OTHER SOURCE (IOS)” includes:

The following list of  income shall be Chargeable to income-tax under the head “Income from other sources” namely:-

  1. Dividends;
  2. Income from machinery, plant or furniture belonging to the Assessee and let on hire, if the income is not chargeable to income tax under the head” Profits and gains of business or profession”;
  3. Lease/ Rental Income on Furniture, Plant & Machinery: Where an Assessee lets on hire machinery, plant or furniture belonging to him and buildings, and the letting of the buildings is inseparable from the letting of the said machinery’ plant or furniture, the income from such letting, if it is not chargeable to income tax under the head” Profits and gains of business or profession”.
  4. Gift more than Rs 50000/- except from relative or on occasion of the marriage of the individual or will or inheritance
  5. Income by way of interest on securities, if the income is not chargeable to income-tax under the head “Profits and gains of business or profession”.

Important Case Law related to Taxation of Income from Other Sources

S. 56(2)(v) of IT Act, 1961—Income from other sources—The amount contemplated under s. 56(2)(v) of the Act cannot include loan which is shown to have been repaid. When an concurrent finding of fact has been recorded by authorities below that the amount received was a short-term loan which was duly repaid and therefore, the said amount cannot be treated as income of the assessee under s. 56(2)(v) of the Act—CIT vs. Saranapal Singh (HUF) (2011) 237 CTR 50 (P&H)

S. 56(2)(v) & 56(2)(vi) of IT Act, 1961—Income from other sources—The gift in question was completed prior to 19th July, 2002 and this gift deed records the fact that gift was already completed prior to date of delivery of IMD bonds by the donor to the donee (assessee). Prior to introduction of s. 56(2)(vii) by the Finance Act, 2009, w.e.f. 1st Oct., 2009, the gift in kind were outside the perview of s. 56(2)(v) or (vi). The expression used in s. 56(2)(v) and (vi) is “where any sum of money” exceeding Rs. 25,000 is received by an individual from any person. Therefore, in the present matter, the provisions of s. 56(2)(v) or (vi) cannot be invoked by the Assessing Officer—ACIT vs. Anuj Agarwal (2010) 130 TTJ 49 (ITAT-Mum)

S. 56(2)(v) of IT Act, 1961—Income from other sources—Minor also considered as an individual under the IT Act. Sec. 56(2)(v) states that any sum of money, exceeding Rs. 25,000 received without consideration by an individual is assessable to tax under the head “Income from other sources”. Proviso r/w Explanations craves out certain exceptions which says that if it is received from a relative, specified therein, it shall not automatically be taxed under s. 56 of the Act. In the present matter, maternal uncle of assessee who has made gifts of Rs. 5 lakhs each to two minor sons of the assesee is not a relative of the donee within the meaning of Explanation to s. 56(2)(v) and, therefore, such sum is chargeable to tax in the hands of the assessee under the provisions of s. 56 r/w s. 64 of the Act—ACIT vs. Lucky Pamnani (2011) 135 TTJ 607 (ITAT-Mum)

Sec. 22, 28(i) & 56(2) of Income tax Act, 1961—Income from House Property—Whether income received as lease rentals towards the amenities and Furniture and fixture is to be assessed under the head other sources and accordingly, the depreciation is to be allowed from the income so arrived. While reversing the order of CIT(A), ITAT, Hyderabad A Bench held that:—”We have to see the intention of the assessee whether the letting was the doing of a business or to exploitation of his property by an owner. The assessee when exploited the property to derive rental income it has to be held that the income realized by him by way of rental income from a building if the property with other asset attached to the building to be assessed as ‘income from house property’ only. The only exceptions are cases where the letting of the building is inseparable from letting of the machinery, plant and furniture. In such cases, it has to be held that the rental would not have been realized but for the letting out of the machinery, plant or furniture along with such building and therefore, rental received for the building is to be assessed under the head ‘Income from other sources’. In the present case, on the facts of the case, it is clear that the assessee as the owner of the building was only exploiting the property as owner by letting out the same and realizing income by way of rent. Such rental income was liable to be assessed under the head ‘Income from house property.’ The various assets let out to the tenants are incidental to letting out the building being integral part of the letting. Accordingly, we reverse the order of the CIT(A) and restore that of the AO. This ground of the Revenue is allowed.” Deputy Director of Income Tax Vs. G. Raghuram [2010] 16 ITCD 181 (ITAT-Hyd)

S. 56(2)(iii) of IT Act, 1961—Income from other sources—Lease income is neither “business income” nor the income can be used for deducting the previous years losses. Therefore, the income derived out of the lease of hospital building cannot be treated as income from profits and gains of business or profession and is to be treated income from other sources—Orient Hospital Ltd. vs. Dy. CIT [2009]

S. 56(2)(v) of the IT Act, 1961—Income from other sources—There are four sister concern units and assessee obtained an interest free loan from one of sister concern units to purchase a flat it cannot be said to be without consideration because as per contract Act, 1872, the assessee is benefited by interest free loan and the lender is benefited by selling the flat at a profit, therefore it is not taxable under s. 56(2)(v) of the IT Act, 1961—Chandrakant H. Shah vs. ITO (2009) 121 TTJ 145 (Mum.)

S. 56(2)(v) of the IT Act, 1961—Income from other sources—There are four sister concern units and assessee obtained an interest free loan from one of sister concern units to purchase a flat it cannot be said to be without consideration because as per contract Act, 1872, the assessee is benefied by interest free loan and the lender is benefited by selling the flat at a profit, therefore it is not taxable under s. 56(2)(v) of the IT Act, 1961—Chandrakant H. Shah vs. ITO (2009) 121 TTJ 145 (Mum.)

S. 28(i) & 56(2)(v) of IT Act, 1961—Income from other source—Once the identity of the donor is established and his capacity is also proved then the only question to be seen is as to whether the transactions of gift were genuine or not. For  examining this aspect, the conduct of parties, that is the donor and the donee, and the appreciation  of attending circumstances becomes necessary. The assessee is a prominent political figure of Indian politices and holding the chair of Honble Chief Minister, UP at the relevant time and against appreciation of her informative work for upliftment of Dalits, she received gifts. The genuineness of such gifts were proved by the affidavits of the donors and, therefore, such gifts have to be treated as personal gifts and not vocational or professional gifts. All such gifts upto Rs. 25,000 are to be considered under s. 56(2)(v) and not under s.28 and thus gifts upto Rs. 25000 are not taxable—Dy. CIT vs. Ms. Mayawati (2011) 135 TTJ 167 s(ITAT-Delhi)

S. 36(1)(vii), (2), 56(2) of IT Act, 1961—Business income or income from other sources—The assessee has the business of sale and purchase of units of mutual funds and the money-lending which is carried out as an organished activity over a period of time. Therefore, income from its business has to be held business income—CIT vs. Eastman Industries (2010) 327 ITR 29 (P&H)

S. 2(24)(x), 36(1)(va), 56(2)(ic) of the IT Act, 1961—Income from other sources—The unpaid provident fund contribution of employees cannot be said to be a business receipt and it is income from other sources—Patni Telecome P. Ltd. vs. ITO

S. 115BB r/w s. 56(2)(ib) of the IT Act, 1961—Business Income—The receipts from hedge betting i.e. business income is to be assessed in the same manner as in the case of other receipts from bets accepted by a bookmaker and it cannot be treated as winning from horse race taxable under s. 115 BB r/w s. 56(2)(ib) of the Act—ACIT vs. Reghunath B. Taware

Reference: – As Per Section 56(2) Of the Income Tax Act 1961

In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :—

(i) dividends ;

     (ia) income referred to in sub-clause (viii) of clause (24) of section 2 ;

    (ib) income referred to in sub-clause (ix) of clause (24) of section 2 ;

    (ic) income referred to in sub-clause (x) of clause (24) of section 2, if such income is not chargeable to income-tax under the head “Profits and gains of business or profession”;

(id) income by way of interest on securities, if the income is not chargeable to income-tax under the head “Profits and gains of business or profession”;

(ii) income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head “Profits and gains of business or profession”;

(iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head “Profits and gains of business or profession”;

(iv) income referred to in sub-clause (xi) of clause (24) of section 2, if such income is not chargeable to income-tax under the head “Profits and gains of business or profession” or under the head “Salaries”;

 (v) where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004 [but before the 1st day of April, 2006], the whole of such sum :

Provided that this clause shall not apply to any sum of money received—

(a) from any relative; or

(b) on the occasion of the marriage of the individual; or

(c) under a will or by way of inheritance; or

(d) in contemplation of death of the payer; or

   (e) from any local authority as defined in the Explanation to clause (20) of section 10; or

(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

(g) from any trust or institution registered under section 12AA.

  1. —For the purposes of this clause, “relative” means—

(i) spouse of the individual;

(ii) brother or sister of the individual;

(iii) brother or sister of the spouse of the individual;

(iv) brother or sister of either of the parents of the individual;

(v) any lineal ascendant or descendant of the individual;

(vi) any lineal ascendant or descendant of the spouse of the individual;

(vii) spouse of the person referred to in clauses (ii) to (vi);]

      (vi) where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006 [but before the 1st day of October, 2009], the whole of the aggregate value of such sum:

Provided that this clause shall not apply to any sum of money received—

(a) from any relative; or

(b) on the occasion of the marriage of the individual; or

(c) under a will or by way of inheritance; or

(d) in contemplation of death of the payer; or

(e) from any local authority as defined in the Explanation to clause (20) of section 10; or

(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

(g) from any trust or institution registered under section 12AA.

  1. —For the purposes of this clause, “relative” means—

(i) spouse of the individual;

(ii) brother or sister of the individual;

(iii) brother or sister of the spouse of the individual;

(iv) brother or sister of either of the parents of the individual;

(v) any lineal ascendant or descendant of the individual;

(vi) any lineal ascendant or descendant of the spouse of the individual;

(vii) spouse of the person referred to in clauses (ii) to (vi);

(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,—

(a) any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;

(b) any immovable property, without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

The following sub-clause (b) shall be substituted for the existing sub-clause (b) of clause (vii) of sub-section (2) of section 56 by the Finance Act, 2013, w.e.f. 1-4-2014:

 (b) any immovable property,—

  (i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

  (ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:

Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause:

Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property;

(c) any property, other than immovable property,—

(i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;

(ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :

Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50Cand sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections :

Provided further that this clause shall not apply to any sum of money or any property received—

(a) from any relative; or

(b) on the occasion of the marriage of the individual; or

(c) under a will or by way of inheritance; or

(d) in contemplation of death of the payer or donor, as the case may be; or

(e) from any local authority as defined in the Explanation to clause (20) of section 10; or

(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

(g) from any trust or institution registered under section 12AA.

  1. —For the purposes of this clause,—

(a) “assessable” shall have the meaning assigned to it in the Explanation 2 to sub-section (2) of section 50C;

(b) “fair market value” of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed42;

(c) “jewellery” shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2;

(d) “property” means the following capital asset of the assessee, namely:—

(i) immovable property being land or building or both;

(ii) shares and securities;

(iii) jewellery;

(iv) archaeological collections;

(v) drawings;

(vi) paintings;

(vii) sculptures;

(viii) any work of art; or

     (ix) bullion;

(e) “relative” means,—

(i) in case of an individual—

(A) spouse of the individual;

(B) brother or sister of the individual;

(C) brother or sister of the spouse of the individual;

(D) brother or sister of either of the parents of the individual;

(E) any lineal ascendant or descendant of the individual;

(F) any lineal ascendant or descendant of the spouse of the individual;

(G) spouse of the person referred to in items (B) to (F); and

(ii) in case of a Hindu undivided family, any member thereof;

(f) “stamp duty value” means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property;]

 (viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested,—

(i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;

(ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :

Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47.

  1. —For the purposes of this clause, “fair market value” of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);]

   (viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:

Provided that this clause shall not apply where the consideration for issue of shares is received—

   (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or

  (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf.

  1. —For the purposes of this clause,—

  (a) the fair market value of the shares shall be the value—

  (i) as may be determined in accordance with such method as may be prescribed; or

 (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature,

whichever is higher;

 (b) “venture capital company”, “venture capital fund” and “venture capital undertaking” shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of [Explanation] to clause (23FB) of section 10;

     (viii) income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A.

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